Income Investors Should Know That O2 Czech Republic a.s. (SEP:TELEC) Goes Ex-Dividend Soon

O2 Czech Republic a.s. (SEP:TELEC) stock is about to trade ex-dividend in 2 days time. You can purchase shares before the 21st of May in order to receive the dividend, which the company will pay on the 22nd of June.

O2 Czech Republic's next dividend payment will be Kč4.00 per share, on the back of last year when the company paid a total of Kč21.00 to shareholders. Last year's total dividend payments show that O2 Czech Republic has a trailing yield of 9.6% on the current share price of CZK219.5. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether O2 Czech Republic has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for O2 Czech Republic

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, O2 Czech Republic paid out 94% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 74% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while O2 Czech Republic's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at O2 Czech Republic, with earnings per share up 9.9% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. O2 Czech Republic's dividend payments per share have declined at 6.2% per year on average over the past ten years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Should investors buy O2 Czech Republic for the upcoming dividend? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with O2 Czech Republic. For example, O2 Czech Republic has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.